Flawed Assumptions Plague Latest Deficit Panel

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Oct. 28 (Bloomberg) — The U.S. budget deficit is worse than ever. Taxes already have been raised, so efforts to narrow the shortfall should focus only on spending. The only fair deal is a straight trade: relief from the cuts under sequestration in return for reductions to entitlements. Yet there’s no incentive for Democrats to go along.

All of these statements are accepted by the public and important politicians. All are false.

History suggests the new House-Senate budget committee, due to report by December 13, will strike out. The Bowles-Simpson panel’s deficit-reduction proposals in 2010 didn’t lead anywhere, Congress’ two budget committees haven’t met in years, and a special leadership-designated “supercommittee” designed to prevent automatic cuts under sequestration reached a stalemate.

The 29-member panel that convenes this week must contend with this record of failure, a task compounded by misinformation.

A starting — and false — premise of the public, and some politicians, is that the deficit is spiraling out of control. In a national survey by Bloomberg News last month, Americans said, by a margin of 59 percent to 10 percent, the deficit was getting worse; this belief was held by 93 percent of Tea Party supporters.

In fact, the deficit, which reached a staggering $1.55 trillion in the 2009 fiscal year, has declined every year since and is less than half as big today.

There’s a need to cut the deficit, short- and long-term, Republicans say, but not by raising taxes, which were increased this year. President Barack Obama already “got his revenues,” House Speaker John Boehner said this month.

Almost $700 billion in revenue, over 10 years, was raised when the administration and Congress agreed in January not to renew the tax cuts for the wealthy enacted under President George W. Bush.

What the speaker doesn’t say is that recent measures, including the sequestration, would reduce outlays by more than $2 trillion over 10 years, or three times more than the higher taxes would generate. The Bowles-Simpson proposal envisioned a ratio of spending cuts to tax increases of less than 2-to-1.

A few Republicans, including Representative Tom Cole of Oklahoma, recognize that revenue must be on the table to get anything done on entitlements.

Other Republicans insist they can trade some easing of the sequestration for entitlement cuts. Yet the most specific suggestions — adjusting cost-of-living increases for Social Security and other programs and means-testing Medicare — have come from the White House.